Is there an interest-free loan?

The idea of ​​a loan without interest and other costs is attractive: you only withdraw the amount you need or get, and you do not have to worry about any extra costs when paying the loan.

How realistic is an interest-free loan really? Does one even exist?

How realistic is an interest-free loan really? Does one even exist?

Of course, even interest-free loans are. For example, many companies promote their sales by offering their customers the opportunity to pay in monthly installments at no extra cost. So if you buy a new computer and take it for a year without interest, it is practically a non-interest bearing loan.

You can also get a loan without interest from a relative or a close friend, who happens to be on the brink of the stock so that money moves when needed. Interest rates are rarely negotiated between people close to you.

Instant loans can also be interest-free. However, the exact borrower will realize that this is almost always just a first loan. In addition, the interest-free loan period is usually short, perhaps only 14 days, a month or a maximum of two. If the loan is not repaid by the due date, the loan will start to incur costs, which could lead to a surprisingly expensive loan originally thought to be interest-free.

Often, interest-free instant loans are offered for marketing purposes. The purpose is to familiarize the client with the services of the lender: once you have become familiar with one of the service providers, you are more likely to turn to it later when applying for an interest-bearing loan.

Maybe a low interest loan anyway?

Maybe a low interest loan anyway?

If the loan is not provided by a close person or an electronics retailer, but by a traditional bank or other financial services provider, the interest-free loan is almost certainly wishful thinking. Therefore, it is worth accepting the fact that a loan without interest and other borrowing costs is practically wishful thinking. In this case, the closest counterpart to a non-interest bearing loan is, of course, the low interest rate loan.

So how do you define a low interest rate loan?

So how do you define a low interest rate loan?

The answer, of course, depends on the borrower’s own views, but objectively, the cost of the loan is affected by the type of loan and, of course, by the issuer: in a competitive market, one offers a loan at a lower price than the other.

Generally speaking, the lowest interest rates on the loans most familiar to people are those with the highest loan amount and the longest loan period. A good example of this is the mortgage, which can amount to hundreds of thousands of dollars and which often takes decades to repay. The mortgage rate is low, usually only a couple of percent, but the total cost of the loan over the years is correspondingly high.

When the borrowings are smaller and the loan period short, interest rates and loan costs increase in proportion to the loan amount. people are familiar with these types of loans, such as consumer credit and instant loans.

The consumer loan loan amounts fluctuate around 70,000 dollars, and the annual percentage rate is rarely higher than 30%. In an instant loan, the annual interest rate may be higher than 100%, but on the other hand, the amounts involved are considerably lower, which means that the risks involved in drawing down a loan are also lower.

So when looking at a low interest rate on a loan, don’t look too closely at the percentages. Instead, it is more meaningful to draw conclusions when considering the loan as a whole according to its type and terms, and further comparing the costs involved with other similar products.

Leave a Reply

Your email address will not be published. Required fields are marked *